January 17, 2012

SEC's Inspector General Leaving For Private Investigations Firm

The U.S. Securities and Exchange Commission's top internal watchdog is leaving the agency this month, taking on a new role as a manager at an investigative services firm.

H. David Kotz, the inspector general at the SEC since his appointment in 2007, will become the managing director of the Washington office of Gryphon Strategies. Kotz was not immediately reached Tuesday.

Kotz said in a prepared statement that the reports his office issued the past four years “have not only been significant to the agency, Congress and the investing public, but they have also directly resulted in a transformation of many of the divisions and offices of the Commission.”

SEC Chairman Mary Schapiro described Kotz as a “committed public servant who has served the agency with great distinction for the past four years. His work helped us to identify areas where we needed to improve the way we operate, bolster our resources, and upgrade our technology.”

Kotz was formerly the inspector general of the Peace Corps and has held other senior-level positions at the U.S. Agency for International Development. Kotz began his legal career in private practice, including a stint as a litigator at Pepper Hamilton.

“The primary role I have is to ensure the agency is able to perform its mission in an effective and efficient manner,” Kotz told The National Law Journal in an interview last summer for a profile.

Kotz, who by several accounts had become a feared watchdog at the agency, led investigations that included the probe into how Bernie Madoff, convicted of executing one of the largest fraud schemes in history, misled securities regulators. Kotz was on the team that interviewed Madoff in June 2009.

In the interview with the NLJ, Kotz recalled a key moment in his conversation with Madoff.

“I asked him, ‘Did you provide the SEC with any false documents?’ He said ‘No. In fact, the documents I provided to the SEC were exactly the ones I provided to my customers.’ I said 'OK, but weren't both of them false?’ He said ‘No.’

“I said, ‘All right, let me try again. Didn’t the documents that you provided to the SEC reflect trades that didn’t occur?’ So he thought for about 30 seconds and said, ‘Yeah, I guess I can see how you might view them as false.’”

“I think his psychology was he almost believed he wasn't perpetrating a fraud,” Kotz said in the interview last year. “I think that’s why he was so effective.”